The afternoon session is on Contracts and Arbitration. The panelists are Richard Alderman (Houston), Jean Sternlight (UNLV), and Steve Ware (Kansas).
Jean has summarized the law of arbitration for the benefit of the contracts professors. I have a section on private arbitration in my casebook, but it is rarely discussed in first year contracts classes, and I do not claim to know its nuances. The issue is whether arbitration can be mandated by a term in a contract—especially a form contract of the sort discussed in previous sessions. (Recall that I distinguish between browsewrap agreements where there is zero manifestation of assent and click-wrap agreements that you must click to agree to (probably unread) terms.)
Rick is giving an impassioned plea for the proposition that there should be no binding arbitration for consumer contracts. He contends that arbitration clauses are meant to avoid the substantive law of contracts that protect consumers as well as consumer protection laws.
He says that there is never any bargaining about arbitration clauses (generally true) and no “rational” person can say there was assent to such clauses. Here I disagree. I think it is quite realistic to consent to unread terms on the grounds that it is not worth it to the consumer to worry about such contingent clauses, while it IS worth it to the repeat players who provide the form since they have to deal with thousands of transactions. The issue for me is whether arbitration clause is so surprising that it is not within the range of terrms that could be consented to without it being brought specifically to the attention of the consumer. I think that arbitration are not so surprising that it cannot be said that a reasonable consumer runs the risk of their presence in an unread form contract.
Steve Ware is now up defending enforcing arbitration clauses. He contends that businesses who use such clauses save money and that SOME (not all) of these savings are passed along to consumers. So both sides benefit from such clauses.
He is now asking where is the source of the benefits to business. If it comes from lower awards to consumer claimants, then such clauses come at the expense of consumers. But he thinks cost savings may also result from lower process costs which is a win-win situatiion for both parties. Only lawyers who are excluded from arbitration are harmed by such clauses. So the issue is determining which is the principal source of the savings. He cites studies that suggest that lower awards in arbitration (as compared with a civil lawsuit) are traded off against higher numbers of successful claims brought in arbitration. So the situation for consumers is not uniform. More consumers may benefit from arbitration, but a few consumers may lose out by recovering less than they would in court. He says the empirical evidence is not that powerful, but this seems to be the trade-off that must be weighed, and he thinks the benefits to the price reductions that are passed along to consumers and the lower cost access to justice outweight what is given up in large jury awards. . . . [to read the rest click show]
Jean replies that it is a myth that consumers can get a decent result in arbitration because very very few consumers go to arbitration over their small claims because (a) they don’t know what arbitration is (b) they cannot get a lawyer and (c) consumers are afraid to take on the task.
Further, assuming consumers may benefit from lower prices, there are other public interest reasons to subject companies to discipline that arbtration largely allows them to excape. In Jean’s view these costs outweigh any benefit to consumers by means of lower prices.
Jean concedes that the win rate for consumers may not be bad, but questions whether arbitration makes it too difficult to bring claims at all.
Rick agrees with all that. Rick does not care if it is rational for consumers because “we as a society make decisions for consumers.” The right to go to court is all important. “We as professors” should care about that. He stresses the deterrent effect of lawsuits–as well as public condemnation–that are not acheived by arbitration.
Steve replies: A lot depends on whether civil litagation is a private matter between private parties or serves primarily a public function. He sees it as the former, Rick as the latter.
He then addresses the issue of who is using arbitration. Credit card companies for example use arbitration so often not because there is different substantive law that is being applied, but because of the lower process costs that make small scale enforcement feasible. This lowering the cost of collection benefits companies, but, as he previously argued also benefits consumers with lower prices.
From the floor, Frank Snyder points out that there are lots of contracts cases in state court to arbitration has not dried up the supply of cases to make the public law of contracts. Jean replies that the concern is that certain types of cases may not be brought often enough.
Charles Knapp (Hastings) asks why contracts professors are the only line of defense of the rule of law? Where are the procedure teachers? Rick agrees that contracts professors are the only line of defense.
Bill Whitford (Wisconsin) asks Steve what he thinks about a small claims court opt-out of arbitration? If I understood his answer, he thnks the lower cost small claims court opt out does reduce the cost advantage of arbiitration.
He then poses another question for Steve: Isn’t it true that to collect an arbitration award don’t creditors still have to go to court? Steve agrees that the cost savings is only on the first half, the adjudication of the merits portion of the claim.
Rachel Arnow-Richman (Denver) asks whether arbitration should itself be regulated to address these problems rather than eliminate abitration altogether? Where would such an alternative regulatory scheme come from? Jean things arbitration can be regulated by unconscionability doctrine so long as it is being used the same way here as elsewhere, and arbitration clauses are not just automatically knocked out across the board. Still she doubts that it is practical to regulate arbitration by traditional unconscionability. She thinks modifying the Federal Arbitration Act would be a possible way to go, but she doubts any changes can get through Congress at this point.
Jamie Fox (Stetson): Brings up the sliding scale discussion of the last panel. Should there be a carveout when you have the in between “adhesion” (form) contract. For example for racial discrimination. Steve says that bills attempting to carveout discrimination in employment contracts are regularly introduced in Congress and fail. He thinks such bills would have a much greater chances of passage in a Democratic Congress.
This was an interesting panel, as was the previous one on IP and contracts. Perhaps this is because even a superficial exposure to issues from other fields–like IP or ADR–is useful to contracts professors, as compared with a superficial discussion of contract law theory itself, which should be beneath the level of knowledge of most who teach contracts.
I am not sure if I am going to do this again for tomorrow’s sessions. For one thing, I dont know if anyone finds this sort of blogging interesting to read. But it was a fun thing for me to do, at least for a change of pace.
Also my Treo 600 with external keyboard worked well for typing my notes. Now if only PowerBlogs would create an interface so I could post to the blog using the Treo, then I could pgenuinely live blog from the event.
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